Intrinsic Value vs Book Value

Buffett begins tracking Intrinsic Value separately, though Book Value remains the primary reporting metric.

Book value is an accounting term (what is put in); Intrinsic Value is an economic term (what can be taken out).

Buffett uses the college education analogy to permanently sever the two concepts for shareholders: the cost of education (book value) has no correlation to the future earnings of the student (intrinsic value).

For great businesses (like See's), Intrinsic Value will massively exceed Book Value. For terrible ones, it will be far less.

Buffett actively starts pointing out that Berkshire's own Book Value is becoming a less useful proxy for its Intrinsic Value.

As Berkshire transforms from an investment company (where assets are marked to market) to an operating company (where assets are carried at historical cost), Book Value structurally understates reality.

Buffett officially tells shareholders to stop looking at Book Value entirely, abandoning it as the opening metric of his annual letter.

Book Value is officially declared 'dead' as a useful metric for Berkshire Hathaway.